Accredited sale raises questions

CARMEL MOUNTAIN RANCH - Some investors are skeptical that
Accredited Home Lenders' purchase by a Texas-based private equity
fund will go through, analysts watching the company said
Tuesday.

The deal would pay stockholders $15.10 per share. However,
Accredited shares have traded below that price for most of the time
since the purchase by Dallas-based Lone Star Fund V was announced
June 4.

On Tuesday, Accredited closed at $13.54, down 47 cents for the
day, and $1.56 below Loan Star's offering price. Accredited
finances mortgages for subprime borrowers, or those who have poor
credit. The purchase is expected to close in the third quarter of
the year.

Three analysts contacted by the North County Times said that
they had seen nothing to indicate the deal was in jeopardy.
However, they said, the persistent gap between the announced sale
price and the current stock price implies that some investors are
not confident the deal will go through.

Neither Accredited nor Lone Star returned phone calls about the
sale.

Some investors may think there's a "ticking time bomb" in
Accredited loans yet to be discovered, said Bud Leedom, publisher
of the California Stock Report.

Leedom said that with the tender offer already under way, the
share price of a company such as Accredited should be within 10 to
15 cents of the announced sale price. But the subprime market has
sustained many unpleasant surprises as loans turned bad, Leedom
said, and investors may be wary of the entire sector.

Erin Swanson, an analyst at Chicago-based Morningstar, also said
Accredited shares are trading lower than they should be, assuming
that the deal will be completed.

"I'm kind of baffled about where the stock has been trading,"
Swanson said. "When the deal was announced, the stock traded
considerably above the offer price that first day, probably because
of speculation that more deals would have surfaced."

That didn't happen, but the magnitude of the drop-off is greater
than expected, Swanson said.

"I've gone through the last couple of weeks of filings since the
announcement came out, and I haven't found anything to the
contrary, that the deal isn't going through," Swanson said.

Like Leedom, Swanson said the bad news about the subprime
lending industry appears to have spooked investors.

"You've seen Washington Mutual close a couple of their subprime
offices, you've seen Wells Fargo basically get out of subprime
entirely. So maybe there's just a negative sentiment in the market,
and that's what's causing people to assume that the deal might not
get through, just because of the continued beating the industry's
taking."

However, analyst Richard A. Eckert of Roth Capital Partners said
he thought that the share price was not unusually low.

"There's always people who play the arbitrage in any kind of
merger announcement, betting for or against the deal," Eckert said.
"Ten percent (below the purchase price) is not that big a gap.
People who get into the stock now will want some upside, even if
the deal does go through, and they're competing against people who
are betting that the deal won't."